Equal Opportunities in Germany - The West Is Lagging Behind the East

The fall of the Berlin Wall and the opening of the intra-German border made politicians talk about the prospect of "blossoming landscapes" in the new federal states in eastern Germany. What has become of that promising economic perspective? A current study by the Centre for European Economic Research (ZEW) suggests that equal opportunities in Germany have grown since German unification. What is remarkable: The chances to obtain a higher income through personal effort are significantly higher in eastern Germany than in the west.

Understanding how inequality arises is key in the debate on income inequality. "The extent to which existing income disparities are the result of individual efforts, and not of origin, is decisive for the realisation of equal opportunities within a society," says Andreas Peichl, head of the ZEW Research Group "International Distribution and Redistribution" and professor of quantitative public economics at the University of Mannheim. The study conducted by ZEW economists is based on German survey data collected from 1992 to 2011. It shows an interesting gap between the old and the new federal states.

"In western Germany," says Peichl, "the chances to gain a higher income through personal effort, to live a success story leading, at best, from rags to riches, is significantly smaller than in eastern Germany." At the same time, the average income in the new German federal states is about 19.5 per cent lower than in the old federal states. In addition, the total income inequality, i.e. the sum of disparities caused by personal efforts and external circumstances, is approximately 17 per cent lower.

According to the considered micro-data, there are several reasons for the east-west disparities.First, the income difference between men and women is less pronounced in eastern Germany than in the west, which has a positive effect on equal opportunities. Second, parents' education, income and socio-economic status have a far greater impact on children's education and income in western Germany. Another important factor is the better availability of (full-day) childcare in eastern Germany.

The study also shows that in both parts of Germany, first- and second-generation immigrants receive lower incomes. This phenomenon is slightly more pronounced in eastern Germany, but all in all it is decreasing. This downward trend explains why equal opportunities in Germany as a whole have been improving since 1998. Another finding of the study shows a very unfavourable development: all other conditions being equal, people who were born in the former GDR and now work in western Germany receive lower incomes.

"It is one of the major policy challenges in Germany to increase equal opportunities by introducing reforms to our education system, expanding childcare and improving the integration of migrants into society," Peichl adds.

After unification, inequality briefly grew in the east. Since the late 90s, inequality of opportunity has decreased to the immediate post-unification level in eastern Germany. In western Germany, by contrast, inequality of opportunity became less pronounced immediately after unification. Between 1995 and 2000, inequality again climbed to the pre-unification level, and then started to fall, reaching an all-time low in 2005. Since then, inequality of opportunity has been slightly increasing again in western Germany.

For more information please contact

Prof. Dr. Andreas Peichl,  Phone +49/621/1235-389, E-.mail peichl@zew.de